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A Guide to Nasdaq ETF Investing

After a strong 2025 and solid gains in the first half of 2026, the big question for investors is whether the stock market rally can keep going in the second half of the year. Much of Wall Street’s recent strength has been driven by artificial intelligence (AI) and the broader technology sector.

The Nasdaq Composite has gained 13.7% so far this year while the Nasdaq-100 has added 16.6%. With technology stocks dominating the Nasdaq, investors are now wondering whether this tech-led momentum has enough steam to continue through 2H 2026 and deliver meaningful gains for the Nasdaq Composite and the Nasdaq-100. Let’s take a closer look.

Factors That Favor Nasdaq Investing in 2H 2026

AI Boom Still Has Room to Run

The AI boom has dominated the broader market for the past three years, and the wave is showing no signs of retreating. Strong demand for AI chips, cloud infrastructure, data centers and software is continuing to fuel technology spending.

Major tech companies are ramping up AI investments as businesses increasingly adopt AI to improve productivity and efficiency. In 2025, major tech companies incurred $410 billion in capital expenditures, while AI spending among hyperscalers is projected to touch $765 billion this year, before rising to nearly $1.2 trillion in 2027, according to Goldman Sachs, as quoted on CNBC.

Decent Valuation of the Nasdaq-100 Index

As of July 31, 2026, the tech-heavy Nasdaq 100 index’s forward price/earnings (P/E) ratio stood at 32.61X, almost in line with the year-ago P/E of 32.67X, per WSJ. This is a reassuring sign given that the Russell 2000 Index’s forward P/E ratio rose 15.6% from the year-ago level. Meanwhile, the S&P 500’s forward P/E ratio inched up 1.5% from the year-ago value.

Notably, the Nasdaq-100 has gained just 0.7% over the past month (as of Aug. 6, 2026), compared with a 2.8% advance in the S&P 500. The recent pullback in technology stocks has helped ease some of the Nasdaq’s elevated valuations, creating a more attractive entry point for tech investors.

Solid Earnings Growth for Big Tech

Q2 earnings for the “Magnificent 7” or “Mag 7” group of companies (i.e., NVIDIA, Amazon, Apple, Microsoft, Meta, Alphabet and Tesla) are expected to be up 85.5% from the same period last year on 27.5% higher revenues, per the Earnings Trends issued on Aug. 5, 2026.

NVIDIA (NVDA), Micron (MU) and Alphabet (GOOGL) are material contributors to the Tech sector’s growth profile in Q2 2026 and the coming quarters. Barring the contribution from these three tech players, Q2 earnings growth for the rest of the Zacks Tech sector dropped to +31.4% (from +93.6%).

For the Mag 7 group, total 2026 earnings are expected to increase by 43.4% on 20.9% higher revenues, which would follow the group’s 2025 earnings growth of 24.8% on 15.5% higher revenues.

Excluding the Mag 7 contribution, total earnings for the remaining S&P 500 companies are expected to grow 20.1% in 2026, which compares to 9.8% growth in 2025, 4.4% growth in 2024, and a 4.4% decline in 2023.

Factors That Go Against Nasdaq Investing in 2H 2026

Rising Rate Worries

Sticky inflation and rising rate fears are putting pressure on markets. Treasury yields climbedsharply following the Federal Reserve's decision to keep interest rates unchanged at the July-end meeting without offering clear forward guidance.

The benchmark 10-year Treasury yield closed July at 4.75%, its highest level since January 2025 (per CNBC), while the 30-year Treasury yield climbed to 5.27%, the highest since 2007.

There is a 54.5% chance of a 25-bp Fed rate hike in the September meeting (at the time of writing), per CME FedWatch Tool. Investors grew increasingly concerned that elevated borrowing costs could pressure equity valuations.

Rising interest rates hurt growth sectors like technology more because higher bond yields cut the present value of future corporate earnings, hitting growth companies (that eye distant profits) hardest.

AI Payoff Timeline Concerns

Despite the strong AI boom, investors are increasingly questioning how quickly massive AI investments will translate into meaningful profits. Any delay in monetizing AI could pressure valuations and create volatility across technology stocks and the broader Nasdaq Index.

Tech Sector’s Cash Burn

The aggressive investment in AI is already weighing on the free cash flow of the companies, with Alphabet reporting its first-ever negative free cash flow in the second quarter, thanks mainly to $44.9 billion in capital expenditures. If AI revenues fail to scale quickly enough, rising cash burn could become a key risk for tech stocks and their elevated valuations.

Amazon also reported negative free cash flow for the trailing 12 months of $7.6 billion, while Meta revealed a 91% plunge in cash generation from a year earlier, as quoted on CNBC.

China Tech Occasionally Threatens Nasdaq’s AI Leadership

China’s tech giants are emerging as a growing threat to U.S. Nasdaq tech stocks. With Chinese firms offering competitive AI models and services at lower costs, they could pressure U.S. Big Tech leaders and intensify competition for global AI spending (read: Moonshot AI Raises the Stakes for Big Tech? ETFs in Focus).

ETFs in Focus

The road ahead for the Nasdaq index has both risks and rewards, but with tech giants aggressively pursuing the “AI opportunity,” the potential rewards could outweigh the risks. Investors can thus play the following Nasdaq ETFs as the basket approach minimizes the company-specific concentration risks.

Invesco QQQ QQQ

The 103-stock fund follows the Nasdaq-100 index. The fund invests about $481 billion in assets and charges 18 bps in fees. The fund invests about 37% of its weight in the Mag 7 stocks, while the broader tech sector takes about 65% of the fund, followed by Consumer Discretionary. The fund is heavy on NVIDIA.

Fidelity NASDAQ Composite Index ETF ONEQ

The fund offers exposure to the broad-based NASDAQ Composite Index. The $10.8-billion asset fund invests about 48% of its weight in the Mag 7 stocks. It charges 31 bps in fees. The fund is heavy on NVIDIA and Apple, with each taking a double-digit weight.

Invesco NASDAQ 100 ETF QQQM

The $102.-5-billion-asset QQQM (often known as the Q mini) has a lower management fee. Shares of the Q mini are also a fraction of the value of QQQ, putting the mini within reach of small savers who might be discouraged by QQQ’s price, per etfdb. It charges 15 bps in fees.

NEOS Nasdaq-100 Hedged Equity Income ETF QQQH

The $383.9-million-asset fund looks to offer tax-efficient monthly income through a data-driven option strategy on the Nasdaq-100. The fund charges 68 bps in fees and has an annual yield of 8.22%. The ETF also carries heavy concentration risk in the Mag 7 stocks.

Invesco NASDAQ Next Gen 100 ETF QQQJ

The 106-stock fund tracks an index of the largest non-financial stocks listed on Nasdaq that aren’t included in the Nasdaq-100 index. The portfolio may be concentrated in mid-capitalization stocks. The $1.17-billion-asset fund charges 15 bps in fees. No stock makes up more than 2.43% of the fund. The tech sector takes about 28.39% of the fund, followed by healthcare (23.77% weight) and consumer discretionary (20.32% weight).

Direxion NASDAQ-100 Equal Weighted Index ETF QQQE

The NASDAQ-100 Equal Weighted Index consists of companies in the NASDAQ-100 Index, but each of the securities is initially set at a weight of 1.00% of the Index. The $1.40-billion-asset fund charges 35 bps in fees.

ProShares Nasdaq-100 Dorsey Wright Momentum ETF QQQA

The underlying Nasdaq-100 Dorsey Wright Momentum Index consists of 21 securities from the Nasdaq-100 index with the highest price momentum. It charges 58 bps in fees. The fund has an asset base of $72.5 million.

Pacer Nasdaq 100 Top 50 Cash Cows Growth Leaders ETF QQQG

The underlying Pacer Nasdaq 100 Top 50 Cash Cows Growth Leaders Index seeks to provide exposure to large-cap U.S. stocks with above-average free cash flow margins. The $21.2 million fund charges 49 bps in fees while yielding only 0.05% annually.

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